This needs polishing as an idea and I'm aware of that, so I'm posting it here among you free thinkers in order to get some feed back and holes blown in it, so I can do more research and patch them where I can.
I've had thoughts like this in my head for the last few years, but never put any of them down, and this was written in an entirely different thread discussing a method of reducing the costs necessary to fund social security for the baby boomers.
So here it is, in all it's roughness.
what I mean by controlled deflation is this:
After whatever recovery from this recession we will have, the inflation inherent in the system that pumped trillions of dollars in will begin to manifest in the sorts of conditions that existed in the 70's.. except there will not likely be as many people demanding higher wages, as there will not be as many people working. Stagflation of the economy, while always a potential risk, will likely only be garden variety high inflation, while wages stay stagnant.
The Fed will have to raise interest rates, like Volker did in the 80's, to rein in the money supply. The cost of borrowing will go up, while encouraging more savings as interest rates rise. This should be sustained as reasonably as possible, allowing the prices of goods, property, etc to come down to levels that resemble reality based on the prevailing wage and people's ability to borrow against their own collateral and savings.
Combine this with a push to buy up a large amount of our own countries reserves being held in foreign banks and return them to this country as collateral, reducing our debt pile, including buying a significant amount of China's Silver reserves (assuming they're still on the market) and giving this country a firm financial base on which to stand, maybe for the first time in decades.
There will be pain for some. That cannot be discounted. but the alternative is to continue to push off a real recovery on the next generation, when recession after recession, it becomes clear that they get worse and worse without addressing the fundamental problems in the money supply as it relates to real wages and savings rates.
We cannot compete in the global market with countries like china and Mexico providing much lower labor costs, without trying to bring our own cost of labor down. The only rational way to do that is to lower prices in a controlled manner and allow wages to fall behind them. If Inflation has always out paced wages, then the rational push to be competitive is to let wages follow deflation of the dollar.
The concept of "Standard of Living" is based on the inflation in the system, since there's no longer a rational basis for the value of the dollar other than the collective delusion of the people using it. Use this to everyones' advantage and bring our "price to wage" ration back to normal levels.
